Bank of England launches bond-buying programme to prevent ‘material risk’ to UK financial stability
The Bank of England has launched a temporary bond-buying programme as it takes emergency action to prevent “material risk” to UK financial stability.
It revealed that it would buy as many long-dated government bonds as needed between now and 14th October in a bid to stabilise financial markets in the wake of the mayhem that followed the government’s mini-budget last Friday.
In addition to the plunge in the value of the pound, it has also seen investors demand a greater rate of return for UK government bonds – essentially IOUs.
That is because the level of borrowing required to fund the government giveaway, including tax cuts and energy aid for households and businesses, shocked the market which immediately questioned the sustainability of the public finances.
What this action is aimed at doing is tackling consequences of rising yields, in this instance a liquidity crunch facing pension funds.
WHY THE BANK OF ENGLAND HAS ACTED
There are some very, very specific reasons why the Bank of England is intervening in this particular asset class in long-dated gilts – that’s gilts of a 20 to 30 year duration.
It affects traditional pension funds where a retiree is guaranteed a certain payout at their retirement based on their final salary when they retire.
Now, a lot of these funds use long-dated gilts as part of their investments and what has been happening over recent days is a lot of the investment funds have been asking pension funds to post more collateral – to put up cash.
It has been reported in The Times that actually these cash calls have been running into tens of billions of pounds since the beginning of the week because of this spike in long-dated gilt yields.
That is why the Bank of England is specifically targeting that with this gilt intervention.
It is aimed at seeing off a crisis that’s potentially starting to emerge in pension funds.
The Bank said in a statement: “Were dysfunction in this (long-dated bond) market to continue or worsen, there would be a material risk to UK financial stability.
“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
The programme marked the Bank’s first policy intervention as it battles to bring down inflation and ease the cost of living crisis. Its chief economist signalled on Tuesday that a “significant” rise in Bank rate was also likely ahead.
The government’s growth plan is only seen as adding inflationary pressure to the economy, leaving it at loggerheads with the Bank’s mandate.
The Bank said the bond purchases, which would be fully covered by the Treasury in the event of any losses, would be sold back once market conditions had stabilised.
The announcement certainly had an immediate effect on the market.
Data showed that 30-year bond yields fell back to 4.3%, having risen to levels above 5% not seen since 2022 earlier in the day. There were similar falls for 20-year yields.
Those for ten-year bonds also fell back below 4% from 4.6%.
Stock markets, which had endured widespread falls Europe-wide amid recession fears, erased some of their losses.
The FTSE 100 had ben almost 2% down but was just 0.8% lower on the day just before 1pm.
The pound, however, was a cent and a half down versus the dollar to stand at $1.0578 and a cent lower against the euro.
The single European currency was also suffering against a resurgent US currency.
In addition to its bond-buying action, the Bank said it would postpone the start of its efforts to unwind the sale of bonds it acquired through financial crisis and COVID crisis era quantitative easing.
The Bank had planned to reduce its £838bn of gilt holdings by £80bn over the next year.
Neil Wilson, chief markets analyst at Markets.com, said the Bank’s move followed evidence of “severe liquidity stress”.
This would have been particularly evident for pension funds who have faced demands for additional cash to cover off rising yields.
“The question is whether (this Bank action) acts to stabilise longer-term or if the market retests the Bank’s resolve”, he wrote.
“We’re now seeing the Bank go toe-to-toe with the market and this might not lead to any decrease in volatility”, he warned.
Tesco Clubcard changes: Supermarket to cut value of rewards scheme
Tesco is cutting the value of its Clubcard rewards scheme, with customers no longer able to get triple their value when they cash them in with scheme partners.
The Tesco Clubcard reward partner scheme lets customers collect points while shopping and exchange them for vouchers for theme parks, restaurants and day trips.
Points used to be worth triple their value when they were exchanged – but from June will only be worth double.
The change will kick in on 14 June.
In a statement, Tesco said it was making the change “to make sure we can continue to provide a wide range of rewards that meet the needs of all our Tesco Clubcard members, while keeping prices low for everyone”.
But some Tesco customers expressed their outrage online given the context of the cost of living crisis.
One person tweeted: “Absolutely disgraceful from Tesco at a time when people are struggling enough with high prices and costs. More important to think of the profits I guess.”
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One Tesco customer said this could spell the end of their loyalty: “Main reason I hadn’t switched to Aldi or Lidl was because we use points for family meals out etc…one step closer to ditching Tesco now!”
Another was more measured in their response: “Card benefits used to be much, MUCH better – but still worthwhile.”
Tesco said it was extending the time period when partner rewards would be valid to 12 months, so any points cashed in for triple their value before 13 June can be used for a year.
In November, two million Tesco customers had Clubcard vouchers worth £13m that were due to expire.
If all those customers had cashed them in using the rewards scheme, the total savings would have totalled £39m.
MPs describe Stormont brake aspect of Windsor Framework as ‘practically useless’
A group of Eurosceptic MPs has described the Stormont brake – a key part of Rishi Sunak’s renegotiated Brexit deal – “practically useless”.
Mark Francois, chairman of the European Research Group (ERG), spoke after the group commissioned its “star chamber” of legal experts to pore over the Windsor Framework, the UK’s deal with the EU on post-Brexit arrangements when it comes to Northern Ireland.
Mr Francois said that among its initial findings were that EU law was “supreme” in Northern Ireland and that the rights of its people secured in the 1800 Act of Union had still not been restored.
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And in his harshest criticism, he said the Stormont brake – the mechanism that would allow a minority of politicians in Belfast to formally flag concerns about the imposition of new EU laws in Northern Ireland – was “practically useless”.
However, he said the ERG would meet again on Wednesday before deciding its approach to a Commons vote on the brake scheduled to take place on the same day.
The ERG’s criticisms of the Windsor Framework will be a blow to the prime minister, who had been hoping to secure widespread approval for his Brexit deal.
While Mr Sunak does not need the votes of the DUP and ERG to get the legislation through parliament, he will not want to rely on Labour’s approval and will be looking to limit the size of any potential Tory rebellion.
The ERG’s preliminary verdict comes as little surprise after the Democratic Unionist Party (DUP) confirmed it would vote against the Stormont brake in the Commons vote.
In a statement on Monday, DUP leader Sir Jeffrey Donaldson said while the Windsor Framework represented “significant progress” in addressing concerns with the Northern Ireland Protocol, it did not deal with some of the “fundamental problems at the heart of our current difficulties”.
Sir Jeffrey said the brake “is not designed for, and therefore cannot apply, to the EU law which is already in place and for which no consent has been given for its application”.
“Whilst representing real progress, the ‘brake’ does not deal with the fundamental issue which is the imposition of EU law by the protocol,” he added.
The NI protocol was agreed as part of Boris Johnson’s “oven ready” Brexit deal and was designed to prevent a hard border in the interests of preserving the peace secured in the Good Friday Agreement.
But the protocol has led to unhappiness in the DUP, who say it has created trade barriers between Great Britain and Northern Ireland and undermined its place in the UK.
Last February the DUP pulled out of the arrangement for devolved government in Northern Ireland in protest at the protocol, effectively leaving the region without government.
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The UK and Brussels agreed the Windsor Framework as a way to incentivise the return of power-sharing in Northern Ireland and to allay some of the key concerns of Unionists.
Under the agreement there will now be a green lane for goods that are destined for Northern Ireland will no longer be subject to time-consuming paperwork, checks and duties.
But Mr Francois said that the green lane “is not really a green lane at all”.
The prime minister’s official spokesperson said on Tuesday that the Windsor Agreement was a “good deal” for the people of Northern Ireland that went “significantly beyond” the previous protocol.
The spokesperson said the Stormont Brake was a “significant step change in what had previously been agreed” and that it had dealt with the “democratic deficit” flagged by the DUP, whereby EU laws apply in Northern Ireland without the influence of politicians in Stormont.
The Stormont Brake remains the “only avenue” to change Northern Ireland’s status as being automatically aligned to EU rules, they added.
“A vote against the brake, in factual terms, would lead to automatic alignment with the EU with no say at all,” the spokesman said.
Just Eat to axe around 1,700 delivery worker jobs
Delivery giant Just Eat has announced it is to axe 1,700 jobs as it ceases to employ its delivery riders and drivers.
Instead it will use gig economy workers to deliver food in the UK, as opposed to the hybrid system of employees and self-employed workers, despite strong comments by the chief executive against the gig economy.
A further 170 people working in Just Eat’s operational department are also impacted.
Delivery employees have been given six weeks’ notice with pay and it is understood office staff will begin a process of redundancy and may be moved to other parts of the business.
While the company could not provide Sky News with the number of delivery riders and drivers it uses in the UK, it did say employees were only a small part of overall delivery operations and only operated in certain parts of six UK cities.
The employment model was rolled out in London in December 2020 and Just Eat became the first food delivery aggregator in the UK to employ delivery people.
Company chief executive Jitse Groen said in February 2021 that the gig economy “has led to precarious working conditions across Europe, the worst seen in a hundred years”.
“The gig economy comes at the expense of society and workers themselves,” he wrote in the Financial Times while listing company plans to employ delivery workers.
Just Eat Takeaway.com said the employee model will continue in Europe.
However, delivery riders and drivers are not employed in all of the company’s European markets. None are employed in Slovakia and Ireland.
The job cuts come after the company saw a 9% slump in customer numbers last year as diners returned to pubs and restaurants.
“Just Eat UK is reorganising and simplifying its delivery operation as part of the ongoing goal of improving efficiency,” a spokesperson said.
“There will be no impact to the service provided to partners and customers.”
Just Eat Takeaway.com is the largest food online ordering and delivery service in Europe. It had been the largest outside China after the purchase of Grubhub in June 2020 but has since sold parts of the business.
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